Analyzing Tesla's Recent Challenges Ahead of the Critical Earnings Report

Tesla is not doing well this year. Investors will find out the extent of this when the company releases its earnings report and provides comments to investors later today.

As of the close of trading on Monday, Tesla's shares have dropped by 43% this year. This decline continued with another 3% drop after the recent announcement of price cuts over the weekend.

The drop in the value of Tesla's stock has some investors, who have been bullish on the company for years, feeling concerned about its future. The concerns stem from worries about electric vehicle demand not meeting expectations, which is affecting all auto stocks. However, Tesla has also been dealing with its own share of negative news recently, adding to the unease among investors. This makes the upcoming Tuesday evening announcement from Tesla especially crucial for the company's future.

According to Dan Ives, an analyst at Wedbush Securities, this is a make-or-break moment for Elon Musk and Tesla. Ives, who has been optimistic about Tesla for years, emphasized the importance of the upcoming conference call and messaging, calling it one of the most critical moments in the company's history.

Many long-time Tesla supporters are now losing faith in the company, especially after underestimating the drop in demand in China. This has drastically changed the perception of Tesla from a success story to a troubling situation in the short term.

Following a decrease in global sales for the first time since the pandemic, Tesla recently announced a price cut for the Model Y, Model X, and Model S in the US by $2,000 each. However, the prices for the Model 3 and the Cybertruck remain the same. In addition, Tesla is planning to reduce its workforce by more than 10%. Moreover, the company is seeking approval from shareholders to reinstate stock options for CEO Elon Musk to purchase 300 million shares at a discounted rate, after a court ruling earlier this year invalidated the 2018 compensation package that included these options.

The company is currently experiencing its toughest competitive challenge yet since turning a profit in 2019. The challenge stems from the rise in competition from both traditional western automakers introducing their own electric vehicle (EV) models and Chinese automakers entering the market.

In the final quarter of last year, Tesla was no longer the world's largest EV maker, losing the title to Chinese automaker BYD. However, Tesla managed to reclaim the title in the first quarter. Despite this, its sales during the first quarter were weaker than anticipated. This has raised concerns that projections of robust growth for EVs may have been exaggerated.

Ives is worried about what Musk might say to investors during the call on Tuesday. He mentioned that if Musk is not serious and no one provides clear answers during the conference call, it could lead to difficult times ahead.

Despite experiencing a decline in sales and implementing price cuts, Tesla remains the most valuable automaker globally. With a market capitalization of $469 billion, it surpasses Toyota by approximately $100 billion and exceeds the combined value of General Motors and Ford by nearly five times.

However, Tesla's value has decreased by more than half since reaching $1 trillion. Some skeptics believe that the company is still significantly overvalued. In November 2021, Tesla shares reached an all-time high following a successful year. Subsequently, the stocks plummeted by almost two-thirds in 2022, only to double once more in 2023 before declining again in 2024.

Analyst Gordon Johnson from GLJ Research believes that the recent price reduction will result in Tesla losing at least $1 billion. He also thinks that the stock should have dropped by an extra 10% compared to the decrease seen in trading on Monday.

According to Johnson, the significant impact of the recent price cuts by Tesla over the weekend is not being fully recognized by investors in the market.

Analysts predict that Tesla's adjusted earnings will be 49 cents per share, a significant decrease from the 85 cents per share reported last year. The company's profit margins have been declining steadily since it initiated an electric vehicle price competition over a year ago.

However, the spotlight on Tuesday will mainly be on Tesla's projections for future endeavors. This includes the introduction of a more affordable version of its car, known as the Model 2, as well as its upcoming plans for a fleet of autonomous "robotaxis" set to be revealed in August.

Earlier this month, Reuters reported that Tesla was no longer pursuing the Model 2 due to competition from China. Elon Musk responded to this news by tweeting that Reuters was lying, but did not provide any further details. In January, Musk had cautioned that Chinese automakers could outperform competitors with affordable electric vehicles. Investors will be paying close attention to Musk's current views on competition from Chinese EVs.

Editor's P/S:

Tesla's current situation paints a concerning picture for investors. The company's stock has plummeted significantly this year, and its upcoming earnings report and investor comments are expected to shed light on the extent of the company's struggles. Tesla faces challenges in the EV market, including declining demand, increased competition from both traditional and Chinese automakers, and a potential overvaluation. The upcoming announcement will be crucial for Tesla's future, as it will provide insights into the company's strategy and its ability to address these challenges.

The article highlights the importance of Tesla's upcoming conference call, emphasizing the need for clear answers and a serious approach from Elon Musk. Analysts are predicting a decline in Tesla's adjusted earnings, with concerns about the impact of recent price cuts on the company's profit margins. Investors will be closely monitoring Tesla's projections for future endeavors, including the Model 2 and the autonomous "robotaxis." The company's ability to navigate the competitive EV market and deliver on its ambitious plans will be key to its long-term success.